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ALJAZIRA CAPITAL
4Q Forcasts for Companies Under Coverage
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RESEARCH DIVISION
Abdullah Alawi
+966 2 6618275
Senior Analyst
a.alawi@aljaziracapital.com.sa
Saleh Al-Quati
+966 2 6618253
s.alquati@aljaziracapital.com.sa
Alaa Al-Yousef
+966 1 2256000
Abdullah Al-Misbahi
+966 2 6618404
Abdullah Al-Rahit
+966 6 3617547
aalrahit@aljaziracapital.com.sa
Aljazira Capital is a Saudi Investment Company licensed by the Capital Market Authority (CMA), License No. 07076-37
DECEMBER 2012
Petrochemical Sector
Result preview . 4Q-2012 Sector update
Average prices of OPEC crude oil recorded at USD107.2/bbl1, during 4Q2012, as compared to USD106.6/bbl2 recorded in 3Q2012. On the other hand, average prices of naphtha as per Argaam, were recorded at USD942.8/ tonne3, indicating QoQ increase of 2.8%. The following table indicates quarterly price trend of key basic chemicals, intermediaries, polymers and fertilizers;
2Q11
1,234.7 1,497.2 344.6 1,405.3 1,153.0 1,144.6 1,360.2 1,153.3 1,613.2 1,545.0 1,197.8 1,272.6 1,354.3 979.4 503.8 415.7
3Q11
1,086.5 1,480.4 388.2 1,455.8 1,123.3 1,121.6 1,370.2 1,242.8 1,533.7 1,577.2 1,092.2 1,248.7 1,191.2 877.1 528.1 509.2
4Q11
1,047.3 1,234.5 397.8 1,300.0 1,100.1 987.1 1,312.2 1,123.7 1,376.7 1,447.5 909.4 1,112.4 1,034.9 750.9 553.2 475.6
1Q12
1,260.1 1,355.2 376.9 1,433.1 1,186.0 1,181.0 1,361.1 1,073.0 1,371.8 1,543.0 995.6 1,180.2 1,037.7 576.6 354.8 431.3
2Q12
1,152.1 1,308.8 388.9 1,374.8 1,094.2 1,115.3 1,344.9 941.7 1,394.3 1,476.5 988.6 1,072.8 1,133.8 604.1 536.7 511.8
3Q12
1,156.9 1,296.7 359.9 1,422.6 1,159.9 1,179.2 1,317.0 1,007.0 1,388.4 1,545.5 946.7 1,038.3 1,019.8 584.3 664.0 426.4
4Q12e*
1,219.0 1,269.0 360.1 1,580.1 1,113.9 1,343.9 1,343.2 1,085.3 1,417.1 1,695.7 951.5 1,108.6 1,017.5 605.8 665.0 426.8
Source: Argaam & ICIS * Average prices during Oct-Mid Dec ** Methyl Tertiary Butyl Ether *** High Density Polyethylene **** Mono Ethylene Glycol *****Polyvinyl Chloride ****** Polyethylene Terephthalate Resin ******* Vinyl Acetate Monomer
During 4Q-2012, the following are the key sectors events and their impact on the companies; The increase in the average prices of intermediaries & some polymers (propylene) remained higher than the increase witnessed in basic chemicals (as indicated in above table); thus, possible improvement in gross margins is expected in 4Q2012. YANSAB ethylene glycol (EG) plant went out of operations for 10 weeks from 25th Nov 2012; Potential impact will be on YANSAB and SABIC profitability; where, YANSAB in a press release indicated the no significant impact on YANSAB will be observed in 4Q-2012. However, the financial impact will appear in 1Q2013 earnings. We, therefore, make our 4Q2012 estimates (as indicated in the below table) in accordance with the given information; and believe the company would sell its inventory (produced at low prices) at 4Q2012 prices (higher than 3Q2012). Thus, the gross margin is expected to show QoQ improvement in 4Q2012 and provide a reasonable cushion in the companys profitability during the shutdown period.
Eastern Petrochemical - Sharq plant halted its operations for 10 weeks started from September 2012 to conduct its annual maintenance. Impact will be on SABIC; where the estimates of SABIC are also adjusted with YANSAB and Sharq shutdowns. SAFCO earnings per share is adjusted with the new number of shares i.e. 333.3mn (post bonus shares). In addition, based on the ongoing geo-political risk and location of the companys key producing plants, we add 5% premium (of possible increase in the prices; in case of increase in geo-political tension) to the companys DCF based valuation and; thus arrived at an updated 12-month prices target of SAR145.0/share (as indicated in the below table). Industries Qatar announced the inauguration of its new production line at QAFCO-6. However, QoQ expected decline in the companys profitability, during 4Q2012, is mainly associated with lower sales from MTBE plant; on account of decline in supply of CO2, as per the companys business plan 2012-16. In addition, according to the companys business plan 2012-16, the company will start its new CO2 plant in 1H2014 to overcome the shortage of the respective feedstock; and this will allow MTBE plant to resume its full-scale operations. It should be noted that estimated YoY growth in the profitability is mainly associated with (i) commencement of QAFCO-5 in 1H2012, (ii) expected start of operations at 3rd ethylene plant (EP-3) & 3rd LDPE plant (LDPE-3) of QPACO in 4Q2012 and (iii) YoY higher capacity utilization at steel plant.
1. Average prices during Oct-Mid Dec 2. Average prices during Jul-Sep 3. Average prices during Oct-Mid Dec
DECEMBER 2012
Company name
Sabic Safco Yansab Sipchem APC Tasnee Industries Qatar
Forecasted QoQ YoY Forecasted net 12 months net profit EPS Q4 Country growth growth profit-FY2012 price target Q4-2012 -2012 % % (LC* mn) in LC* (LC* mn)
KSA KSA KSA KSA KSA KSA Qatar 6,865.5 1,243.5 425.4 174.0 109.2 447.4 2,561.6 2.3 3.7 0.8 0.5 0.7 0.7 4.7 8.8% 8.2% -2.4% 11.6% 8.9% 7.2% -2.1% 31.1% -2.6% -36.0% -17.6% 20.5% -17.3% 53.0% 25,752.2 3,963.3 2,234.3 617.5 320.4 1,969.0 9,671.7 104.2 145.0 49.9 20.8 27.1 28.7 176.1
Rating**
Overweight Neutral Neutral Neutral Neutral Neutral Overweight
Source: Aljazira Capital * LC stands for local currency of the country where the respective company is incorporated ** Our rating is based on the closing prices of 25th Dec 2012
Forecasted net profit Q42012 (SAR mn) 3,987 (2,678) 1,308 32.8% 902 22.6% 447 11.2% 0.67
QoQ growth%
-4.3% -5.3% -2.2% -6.3% 7.2%
YoY growth%
-15.8% -15.0% -17.5% -26.0% -17.3%
Sales revenue CGS Gross profit Gross margins Operating profit Operating margin Net profit Net margin EPS (SAR)
Based on the given information, the upcoming expansion based on the (i) establishment of metal smelter - expected to complete in 2014, (ii) acrylic plant - expected commencement in 2H2013 and Polyol plant - expected to start in 2015; hence, we have not incorporated in our estimations; is indicating the companys focus to broaden the product line and reduce dependence on TiO2. We adjusted our valuation, in accordance with 3Q-2012 financial results & updates mentioned earlier, and arrived at an weighted average 12-month prices target of SAR28.7/share (as compared to our earlier weighted average 12-month price target of SAR43.3/share). This indicates the company is offering a potential upside of 3.6% over the market price of SAR27.7/share (as of 25th Dec 2012). We, therefore, downgrade our recommendation for the stock to Neutral. Analyst comments on 4Q2012 estimates; We believe the expected decline in minority interest in 4Q2012 (as companys normal practice to recognize low minority interest in 4Q) will remain a key reason of QoQ expected growth in net profitability.
DECEMBER 2012
Telecom Sector
Result preview . 4Q-2012 Sector update
We expect the Saudi Telecom sector to benefit from the Hajj season which fell during the start of the quarter. As a result we have expected a rise in companys profitability. Etihad Etisalat (Mobily) we believe will have an added impetuous of IPhone 5 sales which was introduced in the Kingdom on 13th Dec 2012. With more than half a month at Mobilys disposal we expect the company to show strong performance due to Iphone 5 sales. QTELs 122% Y/Y growth is expected due to lower contribution towards minority interest. We already highlighted the fact in our QTEL initiation report that the company has increased its stake in Wataniya (Kuwait) from 52.5% to 92.1%.
Company name
Saudi Telecom Etihad Etisalat Co. Qtel
Forecasted QoQ YoY Forecasted net 12 months net profit EPS Q4 Country growth growth profit-FY2012 price target Q4-2012 -2012 % % (LC* mn) in LC* (LC* mn)
KSA KSA Qatar 2,376.7 1,837.0 1,015.7 1.2 2.6 3.2 21.6% 21.5% 122.6% 2.0% 8.2% 5.0% 9,259.3 5,977.0 5,287.2 54.8 89.0 130.0
Rating**
Overweight Overweight Overweight
Source: Aljazira Capital * LC stands for local currency of the country where the respective company is incorporated**Our rating is based on the closing prices of 25thDec 2012
DECEMBER 2012
Company name
Southern Cement Yamama Cement Qassim Cement Arabian Cement
Forecasted QoQ YoY Forecasted net 12 months net profit EPS Q4 Country growth growth profit-FY2012 price target Q4-2012 -2012 % % (LC* mn) in LC* (LC* mn)
KSA KSA KSA KSA 260.4 199.9 135.9 75.7 1.9 1.0 1.5 1.0 30.0% 27.6% 23.0% -14.0% 4.0% 3.5% -7.0% -4.9% 1,006.8 844.5 553.1 387.8 106.1 55.8 82.0 59.9
Rating**
Neutral Overweight Neutral Overweight
Source: Aljazira Capital * LC stands for local currency of the country where the respective company is incorporated**Our rating is based on the closing prices of 25thDec 2012
DECEMBER 2012
Company name
Almarai Co. Aljouf Agriculture Dev Co.
12 months Forecasted QoQ YoY Forecasted net net profit EPS Q4 price Country Rating** growth growth profit-FY2012 Q4-2012 -2012 target in % % (LC* mn) (LC* mn) LC*
KSA KSA 302.6 40.3 0.8 1.6 -32.7% 15.8% 6.0% 18.1% 1,374.2 102.4 64.6 48.1 Neutral Overweight
Source: Aljazira Capital * LC stands for local currency of the country where the respective company is incorporated ** Our rating is based on the closing prices of 25th Dec 2012
DECEMBER 2012
Company name
Dar Al Arkan Emaar
Forecasted QoQ YoY Forecasted net 12 months net profit EPS Q4 Country growth growth profit-FY2012 price target Q4-2012 -2012 % % (LC* mn) in LC* (LC* mn)
KSA UAE 241.3 470.0 0.2 0.08 9.0% 21.0% -16.7% -35.9% 1,085.8 2,079.0 12.1 3.4
Rating**
Overweight Neutral
Source: Aljazira Capital * LC stands for local currency of the country where the respective company is incorporated**Our rating is based on the closing prices of 25th Dec 2012
DECEMBER 2012
No major event related to the food retail company (AlOthaim), under our coverage, happened in 4Q2012. Hence, the expected 4Q2012 financial growth is mainly based on the generic demand of goods, during 4Q2012.
Company name
Jarir Marketing Co. Abdullah AlOthaim Markets Fawaz Alhokair Co.
Forecasted QoQ YoY Forecasted net 12 months net profit EPS Q4 Country growth growth profit-FY2012 price target Q4-2012 -2012 % % (LC* mn) in LC* (LC* mn)
KSA KSA KSA 143.5 43.3 148.8 2.4 1.9 2.1 -10.7% 6.5% -41.1% 14.9% 18.7% 94.5% 575.5 154.6 671.2 154.8 98.7 109.3
Rating**
Neutral Overweight Neutral
Source: Aljazira Capital * LC stands for local currency of the country where the respective company is incorporated ** Our rating is based on the closing prices of 25th Dec 2012prices of 25thDec 2012
DECEMBER 2012
(ii) Moody announced the possible downgrade of Alcoa credit rating (to junk rating) due to the significant decline in aluminum prices. It should be noted that Maaden has not made any comments on the news; and hence, we are unable to quantify the impact of the news in our estimations. The expected YoY decline in Astra profitability in 4Q2012 is mainly due to the higher operating expense & lower other income, in accordance with the preceding quarter.
Company name
Ma'aden Astra Industries SPIMACO
Forecasted QoQ YoY Forecasted net 12 months net profit EPS Q4 Country growth growth profit-FY2012 price target Q4-2012 -2012 % % (LC* mn) in LC* (LC* mn)
KSA KSA KSA 316.1 49.4 78.1 0.3 0.7 1.0 1.6% 13.0% 6.0% -18.0% 141.0% 6.2% 1,001.5 228.7 257.1 39.3 41.0 42.0
Rating**
Overweight Neutral Neutral
Source: Aljazira Capital * LC stands for local currency of the country where the respective company is incorporated ** Our rating is based on the closing prices of 25th Dec 2012
DECEMBER 2012
4Q-2012 estimate KSA Building and Construction sector companies under coverage
Company symbol
2320
Company name
Al Babtain
Forecasted QoQ YoY Forecasted net 12 months net profit EPS Q4 Country growth growth profit-FY2012 price target Q4-2012 -2012 % % (LC* mn) in LC* (LC* mn)
KSA 18.0 0.4 27.2% 15.7% 65.7 26.3
Rating**
Neutral
Source: Aljazira Capital * LC stands for local currency of the country where the respective company is incorporated**Our rating is based on the closing prices of 25thDec 2012
DECEMBER 2012
Logistics sector
Result preview . 4Q-2012 Sector update
After a slow 3Q-12 , due the Ramadan and Eid holiday season, Aramex is expected to show an improvement in its earnings.
Company name
Aramex
Forecasted QoQ YoY Forecasted net 12 months net profit EPS Q4 Country growth growth profit-FY2012 price target Q4-2012 -2012 % % (LC* mn) in LC* (LC* mn)
UAE 69.1 0.05 30.0% 21.0% 247.0 2.5
Rating**
Overweight
Source: Aljazira Capital * LC stands for local currency of the country where the respective company is incorporated**Our rating is based on the closing prices of 25thDec 2012
AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul market, having occupied the market leadership position for several years. With an objective to maintain its market leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further value-added services, brokerage across MENA and International markets, as well as offering a full suite of securities business.
Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target. Stocks rated Overweight will typically provide an upside potential of over 10% from the current price levels over next twelve months. Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target. Stocks rated Underweight would typically decline by over 10% from the current price levels over next twelve months. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks rated Neutral is expected to stagnate within +/- 10% range from the current price levels over next twelve months. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further analysis of a material change in the fundamentals of the company.
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Disclaimer
The purpose of producing this report is to present a general view on the company/economic sector/economic subject under research, and not to recommend a buy/sell/hold for any security or any other assets. Based on that, this report does not take into consideration the specific financial position of every investor and/or his/her risk appetite in relation to investing in the security or any other assets, and hence, may not be suitable for all clients depending on their financial position and their ability and willingness to undertake risks. It is advised that every potential investor seek professional advice from several sources concerning investment decision and should study the impact of such decisions on his/her financial/ legal/tax position and other concerns before getting into such investments or liquidate them partially or fully. The market of stocks, bonds, macroeconomic or microeconomic are of a volatile nature and could witness sudden changes without any prior warning, therefore, the investor in securities or other assets might face some unexpected risks and fluctuations. All the information, views and expectations and fair values or target prices contained in this report have been compiled or arrived at by AlJazira Capital from sources believed to be reliable, but AlJazira Capital has not independently verified the contents obtained from these sources and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. AlJazira Capital shall not be liable for any loss as that may arise from the use of this report or its contents or otherwise arising in connection therewith. The past performance of any investment is not an indicator of future performance. Any financial projections, fair value estimates or price targets and statements regarding future prospects contained in this document may not be realized. The value of the security or any other assets or the return from them might increase or decrease. Any change in currency rates may have a positive or negative impact on the value/return on the stock or securities mentioned in the report. The investor might get an amount less than the amount invested in some cases. Some stocks or securities maybe, by nature, of low volume/trades or may become like that unexpectedly in special circumstances and this might increase the risk on the investor. Some fees might be levied on some investments in securities. This report has been written by professional employees in AlJazira Capital, and they undertake that neither them, nor their wives or children hold positions directly in any listed shares or securities contained in this report during the time of publication of this report. This report has been produced independently and separately and no party (in-house or outside) who might have interest whether direct or indirect have seen the contents of this report. It should be also noted that the Research Division of AlJazira Capital had no information at the time of issuing this report regarding any conflict of interest between the company/companies mentioned in this report and any members of the board / executives / employees of AlJazira Capital or any of Bank AlJazira Group companies. No part of this document may be reproduced whether inside or outside the Kingdom of Saudi Arabia without the written permission of AlJazira Capital. Persons who receive this document should make themselves aware, of and adhere to, any such restrictions. By accepting this document, the recipient agrees to be bound by the foregoing limitations.
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